Chemical & Engineering News
December 15, 1997
Copyright © 1997 by the American Chemical Society

World Chemical

F orecasting the chemical economy is an increasingly precarious undertaking. For two years, C&EN's World Chemical Outlook has been predicting modest growth in chemical industries, especially in developed countries and markets. And for two years, C&EN essentially has been right.

Looking at macroeconomic forecasts for gross domestic product (GDP), consumer spending, inflation, and the like, it has not been difficult to go out on a limb, if one can call predicting moderate growth going out on a limb. But this year may be different. This year, there is a currency crisis in the Asia-Pacific region that could make big differences in what actually happens in 1998.

It always seems to be foreign trade that is hard to predict. For instance, after a 2.0% increase in U.S. chemical exports in 1996, who would have predicted that, in the face of a strong dollar, exports of chemicals from the U.S. to other countries actually would increase more than 10% this year? In the face of that strong dollar and rising imports, who would have predicted that the U.S. chemical trade surplus actually would increase this year by almost 8% to set yet another record?

So it is with some trepidation that we set out on our mission this year-divine the future for the chemical industries in the three major regions of the world- North America, Western Europe, and Asia-Pacific. And about all that we can do is assume that there will not be some sort of trade war arising out of the Asian currency crisis and that trends by and large will still follow GDP.

In North America-the U.S., Canada, and Mexico-it is primarily the U.S. with its massive domestic market that defines the region. And in the U.S., as economic growth moderates from 1997 levels, the chemical industry also will moderate. Demand for chemicals will show modest increases next year, and prices, which have shown lackluster growth, will grow even less than in 1997. But costs may well come down, boosting profitability in the industry.

Mexico, which has emerged from its own currency crisis but is still going through the on-again, off-again privatization of its petrochemical industry, is showing robust economic growth, and its chemical industry, to some extent, is following suit. But capacity shortages in Mexico put a ceiling on what the chemical industry can do and almost guarantee year-to-year increases in chemical imports.

Canada, the biggest trading partner of the U.S., is expanding exports at a rapid clip. Although it still is running a chemical trade deficit, it is seeing exports- 80% of which go to the U.S.-as the engine driving its chemical industry.

In Europe, unlike past years, analysts say domestic demand and investment rather than exports may be the impetus for growth in 1998, as it has been in the past.

In the Asia-Pacific region, there probably will be problems because of overcapacity compounded by the currency crisis. There also may be lower profitability, bankruptcies, and industry consolidation. This region, which has been growing at double-digit rates, may well have 4 to 5 percentage points lopped off its GDP growth as a result of the currency crisis. China may be Asia's one bright spot. Thus, there will be growth-although moderate-in most regions next year.



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